CYBER SOVEREIGNTY: THE ECONOMIC IMPERATIVES OF A SECURE CYBERSPACE

Mounting tensions spark talk of war as the table is set for a dinner between rivals. On the eve of the first state visit to the United States by Chinese leader Xi Jinping, a single occurrence seems to calm threats of economic sanctions and cyber-attacks. Chinese hackers, accused by the United States of stealing trade secrets, are quietly arrested by their own government.

Reports of the arrests found a welcome, yet wary audience in American media. They are a sign of goodwill from China at a time when relations have grown determinedly apprehensive.

The United States and China maintain a relationship fraught with angst over cyber-espionage. As early as 2007 US officials accused China of stealing designs for a major American weapons system, and by 2013 the tally grew to as many as two dozen major weapons systems that were reportedly compromised by Chinese hackers.

In 2014, a Senate panel found that Chinese hackers had infiltrated the computer systems of private firms involved in the transportation of US troops and military equipment.

In 2015, a massive cyber-attack that originated in China infiltrated the federal Office of Personnel Management, exposing the personal information of millions of government employees.

The Obama administration has been lenient in its response to Chinese hacking that is used for military or political purposes and has tried to distinguish between these attacks and the types of attacks that are used to gain commercial or economic advantage. The US continues to struggle with engraining that principle in the conduct of international espionage.

During Xi Jinping’s US visit, he and Barack Obama vowed that their governments would not engage in or support commercial espionage. The verbal agreement between the two leaders tenders an opportunity for US diplomats. If China were to cede its commercial espionage programs, it would be a profound victory for US efforts to impede such spying.

Despite hope of progress, suspicions linger.

US intelligence officials expressed doubt that China will follow through on its promises. None of the hackers arrested by the Chinese government have yet to be prosecuted and reports continue to surface of subsequent Chinese commercial hacking of private American companies.

Punishing any future commercial spying, even if being permissive of political spying, can strengthen American innovation. While gradual progress is made in halting Chinese hacking altogether, the priority of the US is to protect innovation and technology. Setting clear limits on what the US deems permissible will deter foreign actors from stealing American technology.

The importance of Intellectual Property to Protecting Innovation

Legal protection for those who develop new ideas and technologies encourages advances that makes the US economically competitive. When those protections are not enforced, innovation falters and so does the economy. In a report to the United States Congress, the Commission on the Theft of American Intellectual Property emphasized the economic consequences of allowing IP theft to go unpunished.

Theft of technology robs companies of their investment in developing designs for competitive technologies. When these designs are stolen the result is typically cuts to payrolls that cost the American economy jobs.

IP theft also diminishes the incentives companies have to invest in future research and development. If a company cannot be guaranteed that a potential investment in research will offer any form of competitive advantage, the company has no reason to invest in research at all. The decline of investment in research and development means slower innovation and fewer new technologies to help create economic growth.

Chinese Hacking and the Threat to Intellectual Property

The commission’s report highlights China’s cyber-attacks as a particularly potent threat to protecting innovation. The commission identified China as the world’s most persistent perpetrator of IP theft, revealing that hacking from China accounts for between fifty and eighty percent of the value stolen in commercial espionage.

Sustained Chinese commercial hacking would be a significant setback for global efforts to strengthen intellectual property rights. How China chooses to develop its own legal system can be a useful tool in gauging the respect the Chinese government has for innovation and its willingness to help protect intellectual property.

Problems with China’s Legal Protections for Innovation

In 2012 the US Patent and Trademark Office (USPTO) published a report on China’s patent process in which it outlined legal enforcement as a major concern of American companies.

In order for a Chinese court to hear a legal case, the court must first accept the case. However there are no specific criteria outlining if a court will or will not accept a particular case, nor do courts publish the reasons they had against accepting a case. This leaves judges the power to arbitrarily decide whether or not a case will be heard.

American companies cited discriminatory legal practices as one of their main concerns with China’s patent enforcement. Companies perceive China’s legal system as discriminating against American companies in the favor of their Chinese competitors.

The lack of legal enforcement allows technology to be stolen from American companies with little cost to the the Chinese companies doing the stealing. The lack of legal enforcement for patents held by US companies reflects the unwillingness of the Chinese government to respect intellectual property rights across the globe and in cyberspace.

Reform and Hope for Chinese Support of Intellectual Property

Earlier this year Chinese President Xi Jinping announced a new ideological campaign called “The Four Comprehensives”, and one ‘Comprehensive’ is of particular interest to the fate of IP in China.

Out of the Four Comprehensives, the third is the most significant to IP. The stated aim of Xi Jinping is to “Comprehensively govern the nation according to law”. The rule of law in China may aptly demonstrate the posture of Chinese leaders toward IP and the potential for those leaders to agree to limit the theft of IP through commercial cyber-espionage. Developing the rule of law in China by fighting corruption that hampers legal enforcement could be the key to developing China’s intellectual property rights into those of a modern economic power.

As China’s President presses on with his political campaigns against corruption and in support of his “Four Comprehensives”, the politically inclined on-looker will be wondering if these campaigns will bear fruit of substance to the economy and to international relations, or if they are merely Xi Jinping’s tools for consolidating power.

The potential growth of the global economy will be determined by our technological innovations, and therein lies the importance of China’s willingness to reform its behavior in both cyberspace and the courtroom. We can all hope that Chinese leaders mean what they say when they promise us their support for innovation and the rule of law.